Curtiss Wright Corp Q4 FY2024 Earnings Call

Welcome to the Curtiss-Wright Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open to your questions following the presentation. I would now like to turn the call over to Mr. Jim Ryan, Vice President of Investor Relations.

Thank you, and good morning, everyone. Welcome to Curtiss-Wright's fourth quarter and full year 2024 earnings conference call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Vice President and Chief Financial Officer, Chris Farkas. Our call today is being webcast in the press release, as well as a copy of today’s financial presentation is available for download through the Investor Relations section of our company website at curtisswright.com. Also, a replay of this webcast will be available on the website. Please note, today’s discussion will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are not guaranteed to future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. As a reminder, the company’s results include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright’s ongoing operating and financial performance. Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions, divestitures and restructuring unless otherwise noted. GAAP and non-GAAP reconciliations for current and prior year periods are available in the earnings release and on our website. Now, I’d like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. 2024 was an exciting year for Curtiss-Wright, and I want to begin by thanking our nearly 9,000 employees for their contributions to our success. We executed our growth strategy and continued to invest in some of our most critical areas, including talent, systems, and research and development, while we achieved record financial results for our shareholders. We are clearly building momentum, and I’m pleased with the team’s execution and the steady progress we made this past year in pursuit of our three-year Investor Day objectives unveiled this past May. With that, I’ll turn to today’s presentation. I’ll begin by covering the highlights of our fourth quarter and full year 2024 performance. Then I’ll provide a brief update on our capital allocation and a preview of our 2025 financial outlook, before turning the call over to Chris to provide a more in-depth review of our financials. Finally, I’ll wrap up with some closing remarks about our long-term prospects before we move to Q&A. Starting with our fourth quarter 2024 highlights, sales increased 5% year-over-year due to a better-than-expected performance in both our Defense Electronics and Naval & Power segments. Operating income was essentially flat, while operating margin was strong at 19.8%. As a reminder, our various restructuring actions, some of which were undertaken to reshape our global footprint, generated a few million dollars of initial savings in 2024 and provided a modest benefit to our results. Diluted earnings per share increased 3% year-over-year, which also exceeded our expectations and was primarily driven by higher A&D sales. Free cash flow was strong at $278 million, reflecting a 223% conversion rate, due to improved operational performance and lower working capital. Growth in our order book was exceptionally strong in the fourth quarter, up 37% year-over-year, reflecting a 1.1 times book-to-bill. These results were driven by growth in all of our A&D markets and continued solid demand within commercial nuclear. Next, I’ll highlight our full year 2024 results, which included several financial records. We generated double-digit growth in sales and operating income in 2024, reflecting the underlying demand within our core portfolio and another record year of orders. We delivered modest margin expansion while maintaining our firm commitment to grow R&D faster than sales. Diluted earnings per share of $10.90 increased 16% year-over-year. Adjusted free cash flow reached a record $483 million and reflected strong conversion of 116%. Of note, our results included $16 million of incremental capital expenditures supporting growth investments across all three segments. Turning to our order book, demand was exceptional, reflecting a 20% year-over-year increase, reaching a new record of $3.7 billion and a 1.2 times book-to-bill overall. Leading the way was our Naval & Power segment, which benefited from strong demand for naval nuclear propulsion equipment supporting the U.S. Navy’s most critical platforms. At the same time, higher demand for embedded computing and tactical communications equipment in the Ground and Aerospace Defense markets drove great results in our Defense Electronic segments, where orders crossed $1 billion for the first time. Total Curtiss-Wright backlog was up 20% in 2024, reaching a record of more than $3.4 billion, providing additional confidence in our long-term growth outlook. Turning to Slide 4, we begin with some comments about our acquisitions and share repurchase activity. We added two new businesses in 2024 to further expand our commercial nuclear portfolio. In June, we added WSC, a leading supplier of power plant control room simulation technology. And on December 31st, we closed on the acquisition of Ultra Energy, which is a leading provider of reactor protection systems, radiation and flux monitoring systems, and specialized temperature and pressure sensors. As a reminder, Ultra provides safety-critical products and services to commercial nuclear and power generation plants globally and also supports defense markets, including the U.K. nuclear submarine fleet, as well as various Aerospace applications. This acquisition not only enables us to leverage our U.K.-based nuclear manufacturing footprint, but it also expands our presence with leading global SMR designers. I’m pleased to welcome all of our new colleagues to Curtiss-Wright. As we integrate these new acquisitions, our teams are already collaborating with customers to increase our opportunities for growth as we further expand the scope of Curtiss-Wright’s capabilities. In 2024, we also utilized our strong balance sheet and financial position to accelerate our share repurchase activity. In the month of December alone, we bought back $100 million in stock through an accelerated repurchase plan, boosting our full year repurchase activity to $250 million. This past year, we also increased our dividend for the eighth consecutive year. Now I would like to introduce our full year 2025 guidance. Overall, we are projecting mid-single-digit organic sales growth driven by increases in nearly all of our end markets and total growth of 7% to 8%, including acquisitions. Operating income growth is once again anticipated to exceed our sales growth, reflecting a 40 basis points to 60 basis points in operating margin expansion this year to 18% at the midpoint of the range. At the heart of our drive for operational excellence is the operational growth platform, which fuels our Pivot to Growth strategy by driving continued opportunities for margin expansion and savings across the portfolio. In addition, we’ll continue to deploy new tools and systems to optimize our manufacturing operations and drive connectivity throughout the organization. This, in turn, will allow us to maintain incremental investment in research and development to drive organic growth, which we’ve successfully delivered over the past few years and anticipate ramping up yet again in 2025. It also provides an opportunity to overcome dilution for acquisitions, such as Ultra Energy, as we integrate this business into our broader operations and seek opportunities to drive future margin accretion. These efforts, backed by our strong topline growth, provide us with confidence to once again generate double-digit growth and diluted EPS along with strong free cash flow. In summary, Curtiss-Wright remains well-positioned to deliver an outstanding performance in 2025. Now, I would like to turn the call over to Chris to continue with our prepared remarks.

Thank you, Lynn. On Slide 5, I’ll review the key drivers of our fourth quarter 2024 performance by segment. I’ll begin in Aerospace & Industrial, where overall sales increased 5% and was in line with our expectations. Within the segment’s Defense markets, we experienced solid increases in actuation equipment sales, most notably within our Aerospace Defense market, supporting the F-35 program. Within the segment’s Commercial Aerospace market, our results reflected solid OEM sales growth, supporting increased production on both narrowbody and widebody platforms. In the General Industrial market, our results reflected lower global off-highway and specialty industrial vehicle sales as certain customers continued to reduce their inventory levels through year-end. Partially offsetting those declines was a modest increase in domestic demand for our on-highway vehicle equipment and surface treatment services. Of note, despite reduced sales in this market, we have continued to see improving year-over-year industrial vehicle order trends since the second quarter of 2024. In turning to the segment’s fourth quarter profitability, we delivered a record quarterly operating margin of 21.3%. This was driven by favorable absorption on higher sales along with the benefits of our restructuring initiatives, while we continued to invest in R&D to support our future growth. Next, in the Defense Electronics segment, if you recall, we implemented several restructuring initiatives beginning in the second half of 2024 to support this business’s future growth. Given the expected ramp-up in these efforts and to ensure on-time delivery to our customers’ schedules, we accelerated some revenues and deliveries into the third quarter. As the fourth quarter unfolded, those restructuring efforts progressed ahead of schedule and we were able to effectively take on more volume. And as a result, while we recognized year-over-year and sequential declines in quarterly revenue, the performance was slightly ahead of our expectations. Regarding the segment’s fourth quarter operating performance, though we delivered a solid 24.3% operating margin, our profitability was impacted by under absorption and timing on lower revenues, partly due to the realignments of our manufacturing footprint, as well as unfavorable mix. Turning to the Naval & Power segment, sales growth of 12% was ahead of our expectations, principally driven by higher revenue across several key platforms in Naval Defense. Within this market, we experienced stronger than anticipated growth in production on Columbia class and Virginia class submarines, as well as the CVN-81 aircraft carrier program, due in part to the timing of material receipts. We also experienced higher development revenues on the next-generation SSN(X) submarine program and increased demand for aircraft handling systems to international customers. Within the segment’s Aerospace Defense market, our results reflected lower international aircraft arresting systems revenues based on timing and strong performance from the prior year period. In the Power and Process market, our results reflected continued strong demand in commercial nuclear supporting the ongoing maintenance of U.S. operating reactors. Partially offsetting this strong demand was lower sales in the process market based on the timing of domestic MRO valve sales following strong growth in the prior year period. Turning to the segment’s fourth quarter operating performance, despite favorable absorption on higher revenues, profitability was mainly impacted by unfavorable mix across our defense and process markets. To sum up Curtiss-Wright’s fourth quarter overall results, we generated a strong operating margin of nearly 20% while maintaining our commitment to R&D investment across the portfolio. Turning to our full year guidance, 2025 guidance, I’ll begin on Slide 6 with our end market sales outlook where we anticipate total sales to grow 7% to 8%, reflecting mid-single-digit organic growth plus the contribution from Ultra Energy. Please note that while the majority of Ultra Energy’s sales are tied to our Power and Process market, the business also sells equipment to customers within our R&D markets. Starting in Aerospace Defense, our outlook for growth of 6% to 8% mainly reflects higher embedded computing revenues in Defense Electronics serving both domestic and international customers. We also expect increased sales of aircraft arresting systems equipment, principally supporting international customers. Within Ground Defense, our outlook for 3% to 5% growth reflects continued strong demand for our tactical communications equipment, which as a reminder, follows strong 15% sales growth in 2024. In Naval Defense, growth of 3% to 5% reflects higher revenue on aircraft carriers, including increased production on the CVN-81, as well as support for the CVN-75 refueling and complex overhaul program, which is a multiyear effort that will begin to ramp up this year. We expect those increases to be partially offset by timing on submarine programs that accelerated into 2024. Elsewhere within our Defense Electronics business, we anticipate higher embedded computing revenues supporting various domestic and international programs. Looking more broadly across all three Defense markets, I’d like to highlight the expected contribution of direct foreign military sales. In 2025, we expect continued low double-digit growth in FMS driven by the alignment of our technologies to support increased global defense spending priorities. Turning to Commercial Aerospace, our outlook for 10% to 12% sales growth reflects our strong order book, driving higher early in production sales on narrowbody and widebody aircraft, including modest growth expectations on the 737 MAX in the back half of the year. We expect those increases to be driven by higher sales within our Aerospace & Industrial segment for sensors and surface treatment services, as well as our Defense Electronics segment for avionics and instrumentation equipment. Wrapping up our Aerospace and Defense markets, we expect total sales in these markets to increase 5% to 7% in 2025. Moving to our Commercial Markets and Power and Process, our outlook for 16% to 18% growth reflects a combination of mid-to-high single-digit organic revenue growth, as well as the contribution from Ultra Energy. Starting in commercial nuclear, growth in aftermarket revenues is expected to be driven by continued strong U.S. demand, despite lower year-over-year domestic outages as well as increased sales supporting the U.K. aftermarket from newly acquired Ultra Energy. Our commercial nuclear outlook also includes a ramp-up in development revenues across several SMR designs, including the X-energy and TerraPower advanced reactors. And as a result, we anticipate high single-digit organic growth in this market and greater than 20% growth overall this year when including acquisitions. Next, in the Process market, our outlook for low-to-mid single-digit organic growth reflects increased development on subsea pumps, most notably supporting Petrobras’ deep sea operations, as well as a contribution from Ultra Energy with sales to the oil and gas and non-nuclear power generation markets. And lastly, in the General Industrial market, we anticipate sales to be flat in 2025. Our outlook reflects modest sales growth in industrial automation and surface treatment services, which typically aligns with global GDP growth rates. However, that growth will be offset by reduced sales of industrial vehicles amid ongoing market challenges, but we remain cautiously optimistic based upon our improving order book throughout 2024. Wrapping up our total Commercial Markets, we’re targeting full year sales growth of 9% to 11%. Moving on to our full year 2025 outlook by segment on Slide 7, I’ll begin in Aerospace & Industrial, where we expect sales to grow 3% to 5% overall, reflecting strong growth in Commercial Aerospace and flat sales in General Industrial. Regarding the segment’s profitability, we project operating income growth of 5% to 8% in operating margin to increase 40 basis points to 60 basis points and range from 17.4% to 17.6%. This outlook reflects our expectation for higher sales, as well as the savings generated by our restructuring actions. Next, in Defense Electronics, we expect sales to grow 7% to 9%, principally driven by the strength of this business’ record 2024 order book, which is driving solid growth across all A&D markets. Regarding the segment’s profitability, we expect operating income growth of 8% to 10% in operating margin expansion of 10 basis points to 30 basis points to a new all-time high range of 25% to 25.2%, which includes a $5 million or 50-basis-point headwind from increased internally funded R&D investments. And in Naval & Power, we expect overall sales growth of 10% to 11% or 3% to 5% organically, reflecting solid growth across this segment’s Defense and Commercial Markets. Regarding the segment’s profitability, we expect operating income growth of 13% to 16% in operating margin expansion of 50 basis points to 70 basis points to a range of 16.3% to 16.5%, reflecting both favorable absorption on higher organic sales as well as the contribution from Ultra Energy, which will initially be diluted to operating margin. We’ll also move past the $10 million impact from last year’s first quarter Naval contract adjustment. In addition, our guidance reflects approximately $4 million in incremental R&D investments to support internally funded development programs. Regarding Ultra Energy, we expect this business to generate high single-digit revenue growth and produce a low double-digit operating margin in 2025. And of note, this outlook includes increased year-over-year investments in advanced reactor technology, as this business similarly focuses on expanding its presence across major SMR designers. So to summarize our 2025 outlook, overall, we expect total Curtiss-Wright operating income to grow 10% to 12%. We expect operating margin to range from 17.9% to 18.1%, up 40 basis points to 60 basis points. Next, to aid in your quarterly modeling of sales and operating margin, we expect first quarter 2025 sales to grow by high single digits relative to the first quarter of 2024, including Ultra Energy. Within the A&I segment, based on the seasonality within these businesses, we expect that sales and operating margin will be in line with our first quarter 2024 results. In Defense Electronics, we expect to demonstrate strong growth in sales and profitability and exceed last year’s first quarter results. Lastly, in the Naval & Power segment, while we expect solid growth in sales, our first quarter 2025 profitability will reflect initial margin dilution from the Ultra Energy acquisition. In summary, at the overall Curtiss-Wright level, we’re expecting mid-teens first quarter operating margin on strong sales growth. Continuing with our financial outlook on Slide 8, I wanted to provide some color on a few non-operational items. I’ll start with other income, which we expect to decrease by approximately $4 million to $5 million this year. This is principally due to lower interest income as we entered the year with a slightly lower cash balance given our fourth quarter 2024 cash payment for Ultra Energy and increased share repurchase activity. Later this month, we’ll pay down the $90 million in senior notes coming due, which will have a positive offset in lower interest expense. A note, this current guidance assumes that we’ll have no borrowings against the revolver again in 2025. In addition, our outlook reflects a reduction in our 2025 tax rate to 22%, further building on last year’s tax optimization and efficiency efforts. Turning to our EPS guidance, we expect full year 2025 diluted EPS to range from $12.10 to $12.40, up 11% to 14%, reflecting the strong profitable growth within our operations. To aid in your quarterly EPS modeling, we expect first quarter EPS to reflect approximately 20% growth relative to the first quarter of 2024. And similar to last year, we expect sequential quarterly improvement with the fourth quarter being our strongest. Please note that our EPS outlook also includes a reduction in our share count following the completion of $250 million in share repurchases in 2024. And for 2025, here we anticipate $60 million in standard share repurchases, reflecting a $10 million year-over-year program increase as we continue to offset dilution. And lastly, we’re projecting a full year free cash flow of $485 million to $505 million in 2025, essentially in line to slightly above last year’s record performance. Growth in cash flow from operations is expected to benefit from higher cash earnings, a small contribution from Ultra Energy, and our continued focus on working capital management. And as a reminder, last year’s free cash flow benefited from an all-time record level of advances, a portion which we would expect to be consumed as work progresses in 2025. In addition, we expect capital expenditures to increase nearly $20 million year-over-year relative to the mission of our guide as we continue to invest in support of our future growth. Overall, our outlook reflects a healthy free cash flow conversion rate in excess of 105% again this year, which remains in line with our long-term targets. Now I’d like to turn the call back over to Lynn.

Thank you, Chris. And turning to Slide 9, as we have discussed today, our record order book and growing backlog, along with our positioning within our end markets, provides us with confidence to deliver profitable growth again in 2025. While we remain cautious in light of the ongoing political and macroeconomic environment, we expect to generate high single-digit total sales growth this year. This outlook reflects increases in both our A&D and Commercial Markets and the strength of our combined portfolio. Beyond the topline, one of the most significant milestones that we’re forecasting in 2025 is to reach 18% operating margin at the midpoint of our guide. Our drive to generate operating income growth in excess of revenue growth continues to be a fundamental premise under the Pivot to Growth strategy, and we expect this to result in an accelerated pace of margin expansion in 2025. Further, our steadfast focus on operational excellence allows us to continue to make incremental R&D investments while still targeting double-digit EPS growth. As we’ve noted, based on our strong outlook for free cash flow generation this year, we are able to fuel investments in our systems and infrastructure as we continue to grow our operations and increase efficiency to better serve our customers. These investments will better enable us to capture positions on next-generation defense platforms or benefit from the continued development of SMR technology in commercial nuclear. Next, regarding our capital allocation, and as we look beyond the recently completed Ultra Energy acquisition, we continuously look to put the strength of our balance sheet to work through a disciplined and strategic approach to capital deployment, and we are focused on investing our capital for the best possible returns to drive long-term shareholder value. Our pursuit of high-quality acquisitions has been and will continue to remain our highest priority for capital allocation. Beyond that, we’ll supplement those pursuits by driving consistent returns to our shareholders, as I highlighted earlier in our remarks. Finally, having demonstrated strong financial results this past year and considerable progress towards our long-term growth objectives, we remain confident and committed to achieving all of the three-year targets established at our 2024 Investor Day. Beyond these targets, and as we look out across the next decade to the art of the possible that we proposed at last May’s Investor Day, we remain confident in our focused strategy and the alignment of our technologies to key secular growth trends. The external market forces and related push for carbon-free energy and energy independence is a global movement and one that is needed to address growing energy demands that remain at an all-time high. This, in turn, will drive the continued expansion of projects to satisfy both traditional energy demand, including the electricity and process and heat applications, as well as the potential for incremental demand to support AI and data centers. We recognize that the impacts of legislative and technological disruption on these large and complex projects are likely to continue to create uncertainty along the way, but the core fundamentals remain unchanged, and our view on Curtiss-Wright’s ability to generate strong growth in this market and provide continued value to our shareholders over the near, medium, and long-term remains firmly within our sights. We are aligned with Westinghouse in their pursuit to construct new AP1000 power plants across Europe and North America, and we continue to expect an order for our reactor coolant pumps in the next one to two years. We also continue to grow our presence with the leading designers of small modular reactors, both organically and through acquisition, with construction of advanced reactor technology expected to accelerate later this decade. The numerous projects that Curtiss-Wright is supporting are all still moving forward and continue to build upon our very strong position supporting existing reactors across the globe. At this point, nothing has changed that would impact our Investor Day outlook, which many of you know was a conservative and prudent assessment of the overall growth opportunity for Curtiss-Wright. Finally, we remain encouraged by the new administration’s pro-nuclear stance and the recent appointments of Chris Wright as the new U.S. Energy Secretary and Doug Burgum as the Secretary of the Interior. As a reminder, the U.S.’s initiative to regain our commercial nuclear advantage started in 2017, and this industry continues to garner strong bipartisan support. Collectively, these positive market forces support our confidence in projecting our commercial nuclear business to grow fivefold by the middle of the next decade to an annual run rate of $1.5 billion, providing tremendous long-term value to Curtiss-Wright and our shareholders. In closing, I’m excited about Curtiss-Wright’s future and the many great pursuits across our operations beyond that nuclear optionality, such as our world-class Defense Electronics portfolio and our position as a mission-critical partner to the U.S. Navy. We expect to sustain our growth by winning in strong and expanding markets with exciting and new technologies and solutions while continuing to build momentum in our Pivot to Growth strategy. Thank you. And at this time, I would like to open up today’s conference call for questions.

Certainly. Thank you. Our first question is coming from Nathan Jones with Stifel.

Good morning, everyone.

Good morning, Nathan.

Good morning.

I guess I’ll start on the Ultra Energy acquisition. I know this is one you guys have been excited about, and you touched on some of these things in your prepared remarks. I’m hoping to get a bit more color on how it improves your position on some of the European SMR manufacturers, how you can leverage that business with your current businesses to maybe grow content on some of these platforms. Just a little bit more color on kind of the strategic value you see just outside of the financials.

Sure. And thank you for that question. It took longer than we anticipated to get it to close, but December 31st, we got it done in the year. So it’s a nice, clean break point, you could say, from that position. But we’re definitely out of the gate strong with these guys. We’ve had two main locations, one in the U.K., one down in Texas. We’ve had kickoff meetings with both of them, and both teams were eager to get started on figuring out how we would collaborate together since the closing of the acquisition took longer than anticipated. So there’s a lot of enthusiasm and activity going on. To talk more about the strategic fit, there are a couple of aspects to it. One is, as a European supplier with a European footprint, it gives us the opportunity to possibly transition some products to be able to be supported through that facility and provide more localized content, which is important as you think of the major reactor providers that are European-based, most notably Rolls-Royce, with whom they have a great relationship. We’ve already had initial meetings on how we can better advance our partnership with them. This is just one example of leveraging that footprint. However, it won’t be just with that one customer. I don’t want to imply that, but that’s kind of the biggest and most immediate focus right now. They also do work, as we mentioned, with the U.K. submarine fleet. Dollar-wise, it’s not an overly significant part of their revenue stream, but it’s critical technologies and relationships that we’ll see where this partnership can take us. Their high-temperature pressure and sensor products were mainly produced and designed for the nuclear market, but as the world tries to become more energy efficient, there’s a much broader applicability of these products globally. I think we’ll have a much greater reach in how we can take these products to market than was really a focus for that team, and so we’re early days of working with them on that area. This is just to touch on a couple of points, but their heritage is one of the things I find exciting. From our Investor Day, we talked about how we’re proud that we have heritage in many of our businesses from the inception of the industry. This team brings that same heritage, along with deep industry knowledge and connections that are different from ours. So it’s about more than just the tangible things. They are a well-established, strong player in this with unique and great technology that just broadens what we can offer to our customer base.

Awesome. Thanks for the color. I guess my second question is about foreign military sales. There’s obviously a big push from the U.S. administration to get Europe to increase their defense spending. I think Air Defense and Ground Defense would likely be areas of focus should foreign military or European governments look to increase military spending, which should fit very well with Curtiss-Wright’s portfolio. So maybe you could just give us some color on what kind of improvement you would expect in foreign military sales if, I don’t know, Europe increased defense spending by 1% or just any kind of color you can give us on how you would benefit.

Well, I’ll let Chris speak to the numbers. But before that, you’re right. Ground Defense is a great area over there. We have a very sophisticated capability in stabilization equipment that is used on a variety of vehicle platforms, and a strong partnership with Rheinmetall, which is the leading manufacturer of vehicles over in Europe. That’s not the only place we partner, but it’s certainly a preeminent one. We also have systems capability to deliver various types of products into both ground and aerial vehicles. We ship a lot of equipment directly from the U.S. into European customers. Our product applicability is pretty broad. With that, let me turn it over to Chris to talk through some of the numbers.

Yeah. Sure. This has been a great growth factor for us, Nathan, as you know. I will say that it’s very difficult for us to predict what a 1% increase in GDP across NATO is going to translate to for Curtiss-Wright. However, we have seen some significant increases in NATO spending over the past few years in 2024. We now have 70% of the countries spending more than 2% of their GDP. If that continues to accelerate, we would expect that to help drive our portfolio. Back in 2023, foreign military sales grew more than 20% for Curtiss-Wright. In 2024, our foreign military sales grew 10%, which was despite some timing issues we had with our TDS business, which can be a little lumpy at times. We saw strong demand across our Defense Electronics business, given their broad portfolio supporting aerial and ground markets, as well as some benefit to our aircraft handling business within Naval & Power. As we enter into this next year, we expect continued low double-digit growth, mainly driven by C5ISR, Naval aircraft handling, and also some of the ground-based arresting systems we have within Naval & Power. So, we see it as an ongoing opportunity for Curtiss-Wright going forward.

Excellent. Thanks very much for taking my questions.

Thank you.

Thank you. Our next question comes from Mike Ciarmoli with Truist Securities.

Hey. Good morning, guys. Nice results. Thanks for taking the question. Chris, I guess, just looking at great order flow, record backlog, you’ve got the organic growth outlook in 2025 decelerating a bit. Defense has obviously been extremely strong. But any other kind of hooks and takes? I know the mid-single digits in line with what you laid out in Investor Day, it seems like I would have thought maybe the aero piece would have been a little bit better. But any other puts and takes on just kind of that revenue dynamic?

As we enter into the year, we feel really well-positioned with where we are from a backlog perspective, particularly across our A&D markets. A lot of the order activity we experienced in 2024, when you look at, like, a second quarter book-to-bill 1.7 times in Naval & Power, that’s multiyear work coming to Curtiss-Wright. We see a solid opportunity for growth ahead for that business. Within Aerospace Defense, there’s a strong driver not only with C5ISR, but also with what’s happening over in the actuation business relative to some additional work that they have with the F-35 program and other fighter jets. Within Naval & Power, you’re looking at some uplift relative to the ground-based arresting systems on an international level. In Ground Defense, we had 15% growth in that business this last year, stronger than the year before. The order book is great. However, as we enter the year, some of the capacity management we’re doing within that business continues. So we’ll expect a little more chatter here maybe in the first quarter until we get some of those efforts completed. Overall, I think we’ve taken an appropriate position entering into the year given all that.

Got it. That’s helpful. And then I guess just a question on the topic coming up across almost every call, tariffs. I guess we’re going to get more news here at 1 o’clock today, presumably. But back in 2018, maybe you had a couple million dollars here or there. How are you thinking about potential tariff headwinds, either on the revenue or operating income kind of contemplated in the outlook?

It’s definitely a topic of conversation and a fluid situation, to say the least. I appreciate you bringing up the past situation. The thing I would communicate first is that Curtiss-Wright has dealt with a variety of disruptive situations recently, whether it was the tariff back in the late teens, which were about $9 million—about half of which we were able to mitigate with our customers and the other half we absorbed—but it was not material to the business. We absorbed the pandemic, during which we lost $300 million in sales; we had supply chain disruption and ongoing inflation. Importantly, Curtiss-Wright has delivered steady growth and steady margin expansion through all these situations. We have our commitments to managing this current situation as we have been action-oriented. We’re already doing the things we can do with the information we have. We’ve started some cross-functional teams that are really ensuring we have a handle on everything related to operations, contracts, financials, legal, etc. We’re reviewing product flows, contract terms, and watching formal government communications to consider all options we can leverage now. We’re continuously thinking through areas to minimize impact, focusing on mitigating actions such as price recovery or a different product delivery approach that isn’t overly disruptive. As of now, we feel confident in our guidance for the year. This ongoing situation is something we’re aware of, but we believe we can manage through it.

Got it. Helpful. And just last one, Lynn, I think I heard you correct. You’re expecting maybe a reactor coolant pump order in the next one to two years. Is that just maybe color on that timeline? Is that sort of in line? Is it sliding to the right? Anything changing out there?

Yeah. So it’s been, I’d say, honestly, amazingly steady over the past three years since coming out with our February 24, 2022 guidance. The timeline for our first RCP order has gone from three to five, two to four, one to two, with a steady progression year-over-year, and it has remained very stable. We work closely with Westinghouse to monitor the pipeline. When we say one to two years, we really mean we expect an initial order by the end of 2026. Just to be more specific, somewhere between now and then. I wouldn’t say now, but more in the one-year to two-year timeframe, but really by the end of 2026. One piece of news that’s out there for those who follow all the feeds is that Poland has moved their operational date from 2031 to 2033. However, this decision does not affect our timeline for the first order, which is still anticipated to be Poland. Westinghouse has known that for some time. It just hasn't been public. So as we work with Westinghouse and anticipate that order, don’t interpret that shift as a delay in our expectations. Additionally, there’s discussion about potentially getting the V.C. Summer plant back online, which could represent a great opportunity for Curtiss-Wright if that happens. Lastly, this week’s breaking news indicates India is considering changing their approach to indemnification on nuclear power plants, which could remove barriers for selling plants into India. While these developments are promising, none are expected to precede the Poland or Bulgaria orders, but they are worth noting.

Got it. That’s helpful. Thanks, guys. I’ll jump back into the queue.

Okay. Thanks, Mike.

Thanks.

Our next question is coming from Myles Walton with Wolfe Research.

Thanks. Could you comment on what the order was that triggered the large deferred revenue to come through on the cash flow? And then also, as I look at your Naval Defense business, that went from an expectation in 2024 of starting the year at 3% to 5% growth and ended up at 14%. Can you provide some commentary on what was going on there and the new starting point for 2025? Is there a similar upside opportunity?

To answer your first question, the volume of Naval orders we had received this last year was extremely strong. Our ability to convert that, whether it be through material receipts or the significant ramp-up in staffing we achieved this last year certainly surpassed our expectations. Looking at our balance sheet, we were up $140 million in deferred revenue this last year—record levels of advances not only across the full year but also in the fourth quarter. Most of that relates to submarine projects and acceleration of work. Additionally, across our Defense Electronics business, we did a solid job of securing advances. We wouldn't identify it with a single contract, but that’s what drove those numbers. As for the upside in Naval Defense, it largely depends on our ability to put the right CapEx and personnel in place, but we feel good about the guidance entering this year.

Okay. And what was the book-to-bill by segment for 2024, if you have that?

If you look at Aerospace & Industrial, it was 1.05, Defense Electronics was 1.16, and Naval & Power was 1.3.

Yeah. Okay. And then maybe, Lynn, on the subsea pump business, given we now have the Gulf of America and we’re going to drill a lot, what’s the outlook for the subsea pumps? Is this a material opportunity over the next three to five years versus what you’ve previously been thinking?

Across our entire process market, we see favorable conditions for growth. The early executive orders were not only very pro-nuclear but also very pro-LNG and fossil fuels overall, which is good for Curtiss-Wright. We’ve sized the opportunity for subsea pumps at $250 million potential by the end of this decade. That estimate still holds true as of now. We’re still in the final phases of bringing the shell pump deployment with Petrobras online and developing it further. I believe this environment will provide a tailwind for not just subsea but also other aspects of our valve footprint and various equipment across the process industry.

Okay. All right. Thanks so much.

Thanks, Myles.

We will take our next question from Jason Gursky with Citigroup.

Hey. Good morning, everybody. Lynn, I’d like to do a couple of big-picture questions with you if that’s okay. Just starting with the transition with the administration and maybe just kind of reflect, if you wouldn’t mind, for a minute on how this transition has been different than what you all have seen in the past and what, if anything, you all are doing differently as a result of any differences that you’ve seen in this transition?

It’s been a fast-paced transition that I think everybody recognizes in the news, and that’s universally true—not necessarily tied to Curtiss-Wright, specifically. The clarity of position on things such as nuclear coming out with an executive order within the first two weeks demonstrates how the administration sees energy dominance and their clear support for nuclear and fossil fuel production. Those are levels of clarity and speed that are not typical. What’s not clear are the tariffs. Hopefully, that will sort itself out in the coming weeks. However, I see broad implications if we achieve a more efficient government that wants to allocate funds wisely. That should benefit Curtiss-Wright. There’s a belief that the government may take a significantly less friendly attitude toward cost-plus contracts, preferring to move toward fixed-price contracts, which is where Curtiss-Wright primarily operates. I believe a more efficient government alongside the value proposition Curtiss-Wright presents will yield positive outcomes. As we enhance commercial nuclear capability, streamlined processes may accelerate project timelines.

That’s great. And you briefly touched on what was going to be my follow-up question, which was on DOJ. If you could step back and recommend what you'd like to see DOJ focus on at the Pentagon, I think it would be interesting to hear your thoughts on what they should be looking to accomplish.

The entire acquisition process, from my perspective, is fairly slow. Therefore, if DOJ could improve that process broadly, it would bolster the government’s value from our contracts. Furthermore, as an organization, we are increasing our visibility and contact points with the Pentagon and Capitol Hill to emphasize the value Curtiss-Wright brings to the government. I’m confidently promoting what we provide and know that we are a great supplier to the U.S. Government. I believe that this alignment will be beneficial as the government strives for efficiency.

Yeah. Thanks. Good morning or good afternoon now, I guess. Lynn, Chris, Jim. Hey, Lynn, could you comment a little bit about the outlook on commercial nuclear? You called out for high single organic growth. I think there’s organic growth this year, but you grew low double digits last year, and your guidance for 2026 assumes low double digits. Are we—is this just timing related or is there a deceleration, something you pushed out that is a change from 2024 versus 2025?

No, I think, Peter, we had a strong year this last year, and as we committed at Investor Day, we would grow. We still see the trajectory as a low double-digit CAGR over the three-year period. This year, we are seeing strong results from license renewals and PLEX work that’s happening around the industry. However, one of the headwinds we’re facing is the lack of outages this year, which can vary over a three-year cycle. That could lead to a dip but will be offset by maintenance activities. The design effort is ramping up, as well, and we’ve seen excitement from Ultra Energy on R&D investments for new projects.

Got it. Okay. That’s helpful color. And then just, Lynn, you made the comment about the nuclear business being 5x as you get out into the next decade. Is that all organic, or do you contemplate more M&A in this space?

That projection is built primarily from organic growth based on our existing content and what we anticipate from the AP1000 build-out, aftermarket support, plant life extensions, and the ramp-up of SMR projects anticipated to develop at a steady pace. It is largely driven by our internal capabilities.

Hey. Good morning, guys. Nice quarter.

Hi, Pete.

A couple of follow-ups on Naval & Power. First, just a clarification. So the material receipts you brought in that booked revenue in the fourth quarter, that led to the strong revenue, but I assume it’s also low-margin revenue in that mix. Is that why the 4Q margin at Naval came in a little below your expectations? Is that kind of what it was?

Yes, that’s part of it. A good portion of the revenue beat in Naval was associated with material. But other parts were better staffing progress to support the strong order book. However, we also shifted resources from our subsea pump development to support milestones in the fourth quarter. In summary, while we still had a strong 19.1% margin in the fourth quarter, the biggest reason for missing expectations relates to higher defense business. And that business does carry strong margins but with the mix across the Naval & Power portfolio, it diluted somewhat. Our margins were influenced mostly by higher defense sales and lower international arresting system revenues.

That’s helpful. I appreciate it. And then looking ahead to 2025 in this segment, what’s the right way to think about the restructuring that you guys are doing there? Are you closing sites or doing other investments? Can you help us understand what’s going on?

Just to clarify, the majority of our restructuring spend this year was $15 million, producing $10 million of annualized savings, of which three fell into 2024. Seven will fall into 2025 to achieve that $10 million target. Most savings came from the A&I segment which we adjusted earlier this year. The other big contributor is Defense Electronics, where our main focus is moving our footprint and expanding capacity. There will be some disruption in Q1 of the new year, following strong results. As for our order backlog, it looks extremely strong and gives us reason to be optimistic moving forward.

Okay. Thanks for the color. I appreciate it.

Yeah.

We will take our next question from Bryce Sandberg with William Blair.

Lynn, Chris, and Jim, good morning, and thanks for the question.

Good morning.

Good morning.

I just want to ask, on the Naval business, we’ve seen pretty significant supply chain and labor disruption at one of the shipyards that’s impacting production. But obviously you’ve had strong momentum in your Naval business, so just kind of want to understand better how that disruption may or may not flow through your business, and does that represent an opportunity for you to take on more work within the supply chain?

It’s a question that we get asked frequently, and we are reasonably decoupled from the exact flow in the shipyards as our materials have such long lead times. Our equipment is usually ordered years in advance of the shipyards, and there isn’t a clear one-to-one coupling. However, from an opportunity perspective, we strive to be an eager supplier and are always open to taking on new work if the Navy requires secondary sourcing or to adjust supply points. Those instances do not occur often, but when they do, we've successfully captured some content by taking this approach. Nonetheless, it does not have an immediate coupling with shipyard operations.

One of the exciting things about our business is the aftermarket work that's available to Curtiss-Wright. We’ve got two service centers on the East Coast and one on the West Coast. Not only is it RCOH work, but there’s also a lot of aftermarket service pertaining to Virginia-class submarines as the initial provisioning of spares is ramping up. Overall, we have opportunities to grow that are unaffected by shipyard activity.

That’s helpful. Thanks, Lynn and Chris.

Thank you.

Thank you. If there are no further questions coming from the phone lines, I will now turn the call over to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Thank you everybody for joining us today, and we look forward to reconvening when we have our Q1 results. Have a good rest of your day.

Thank you. This does conclude today’s Curtiss-Wright earnings conference call. Please disconnect your line at this time and have a wonderful day.